Europe Embraces Shale Gas

Several European governments have so far this year bucked a reluctance to extract shale gas via hydraulic fracking even as the practice continues to be strongly opposed in countries like France and Bulgaria. Following the UK’s move in late December to lift a ban on shale gas exploration, Germany on Feb. 26 unveiled a draft law that permits development of the unconventional fossil fuel through fracking, albeit with conditions. Reversing a previous decision, Romanian authorities on Jan. 31 awarded energy giant Chevron certificates to explore for shale gas in the eastern part of the country, while a Ukrainian regional council voted to approve a deal with Shell to develop a shale gas field.

These decisions come on the heels of the European Parliament’s rejection of a ban on shale gas. And late last year, the European Commission (EC) Joint Research Centre issued a key report (Figure 1), which finds that under a best case scenario (one that takes into account environmental considerations), future shale gas production in Europe could help the European Union (EU) maintain a stable dependency on energy imports, keeping them at the current 60% of total EU energy needs. The report acknowledged, however, that considerable uncertainty exists about recoverable volumes, as well as regarding technological developments and public acceptance of shale gas extraction. Critically, it noted, the EC remained “neutral” to member states’ decisions concerning their energy mix, but it stressed that the commission would continue to ensure that an appropriate framework was set up to enable “sustainable” shale gas extraction that fits within EU policy objectives of working toward a decarbonized economy. The framework is expected sometime this year.

1. Unconventional gas production to 2040. A recent report from the European Commission’s Joint Research Centre projects that in a scenario most favorable to shale gas development, the U.S. will capture the lion’s share (70%) of the world’s total unconventional gas production by 2020. But U.S. shares will decline to 30% as East Asian markets (and China’s in particular) see a surge in production after that. Other regions will see moderate but steady growth, and of the world’s total production by 2040, Central/South America will produce 9%, Europe 8%, Africa 7%, and Canada 6%. Source: European Commission Joint Research Centre

Germany Warms to Fracking

In industry-heavy Germany, shale gas drilling has been a headline-making and contentious political subject that features prominently in the rhetoric of politicians seeking votes in this year’s Sept. 22 national election. Germany chose to shut down six of its nine remaining operational nuclear reactors by 2022 after the Fukushima Daiichi accident in March 2011, but it is now struggling to secure replacement power. The draft legislation released by Chancellor Angela Merkel’s government in February introduces environmental safeguards by outlawing fracking in protected areas and near drinking wells—an area estimated to cover about 14% of German territory. All projects must also undergo environmental impact studies.

Experts suggest that the proposed restrictions may not appease fracking opponents in the Greens and Social Democratic parties, which have urged the government to institute a moratorium on shale gas development until better techniques are found. Proponents say, meanwhile, that Germany’s economy would get a badly needed boost if it exploited its estimated 2,300 billion cubic meters (bcm) of technically recoverable shale gas reserves. They point out that fracking isn’t new to Germany: About 300 wells have already been fracked since the 1960s. But, as Germany’s domestic supplies of conventional natural gas dry up, the country continues to consume about 86 bcm/year of natural gas—about 40% of which it is forced to import from Russia.

Romania’s Government Backs Shale Gas

After the re-election—with an absolute majority in both the Chamber of Deputies and the Senate—last December of Romania’s Social Liberal Union party, Prime Minister Victor Ponta has publically said he supports environmentally responsible shale gas exploration. The statement is a U-turn from Ponta’s previous stance, before he was appointed as prime minister in May, to ban shale gas exploration (he proposed a bill that was overwhelmingly defeated by the Senate). Despite public protests in southeast Romania, where the country’s shale gas reserves are situated, Chevron in January reportedly obtained zoning certificates enabling it to explore for shale gas with fracking.

Ukraine Prepares Shale Gas Deal

Ukraine also made headway in January, as deputies of the Donetsk regional council voted to approve a deal with Royal Dutch Shell to develop the Yuzivska shale gas field. The eastern European country harbors Europe’s third-largest shale gas reserves (at 1.2 trillion cubic meters, behind France and Norway) but is mired in a contentious 10-year deal signed in 2009 by the previous government with Russia’s Gazprom for $430 per thousand cubic meters of imported Russian natural gas.

Former Prime Minister Yulia Tymoshenko is serving a seven-year prison sentence—the subject of a high-profile human rights campaign—as a result of that contract, signed after a payment dispute between Russia and Ukraine over gas supply and transit left much of eastern Europe in the cold in the first three weeks of 2009. Tymoshenko is charged with asking Ukraine’s Naftogaz to commit to the exorbitant price while market prices were relatively low.

In January, meanwhile, as Russia’s Vladmir Putin and his Ukrainian counterpart Prime Minister Mykola Azarov failed to reach an agreement to bring down the prices Ukraine pays for Russian gas, Moscow and Kiev were embroiled in a fresh gas dispute. Gazprom billed Naftogas $6.77 billion under a “take-or-pay” clause of the 2009 agreement that Ukraine has to disburse, even if it does not import gas. In 2012, Ukraine bought 32.9 bcm of Russian gas, while the deal stipulated it should have imported a minimum of 42 bcm.

Ukrainian officials lauded the regional council’s decision to approve development of the shale gas field in January, saying its annual production could exceed 20 bcm and lower gas prices within five or six years while boosting the country’s energy independence from Russia. The country is also looking to develop the Olesska gas field in the western part of the country but has yet to make a production-sharing agreement—likely with Chevron—official.

UK Lifts Shale Gas Ban

Last December, nearly a year and a half after the UK halted unconventional shale gas exploration when a project near Blackpool set off tremors, Energy and Climate Change Secretary Edward Davey approved shale gas fracking. The approval means shale gas developers can resume fracking but will operate under more stringent rules, including more in-depth assessments for seismic risks.

The UK is facing a massive power shortfall if it cannot find new capacity to replace about 21 GW that is set to be phased out by 2030 due to age and EU pollution rules. Highlighting the country’s energy dilemma are its dwindling conventional natural gas reserves that have forced it to become a net importer. Though the government estimates that the UK’s onshore shale gas reserves hover at 150 bcm, only one shale gas firm, Cuadrilla Resources, has an exploration license. However, the government has called for the creation of a new office to simplify regulation and offer tax incentives to sprout a working shale gas industry.

Sonal Patel is POWER’s senior writer.